As soon as it cleared the skies outright for two days after the Sept. 11 attacks, the federal government knew it was going to write some fast checks to the airlines, no strings attached  $5 billion in cash to carriers to get planes back in the air, and $3 billion for beefed-up airline security to get passengers back in the planes. With all of aviationís many economic tentacles  hotels, casinos, rental cars, tourism  the industry was obviously too big to let fall when the economic front was the first battle of the new war. Congress even took over the airlines' liability for victimsí-family compensation, an offer that could be worth as much as $18 billion when all the claims are filed.

But that still leaves $10 billion from the bailout package to give out, and airline lobbyists clamoring for the cash. Now Washington finds itself in the same position itís been in for decades with companies (say, Chrysler), industries (say, S&Ls) and even nations (Mexico, Korea, Indonesia, ArgentinaÖ). Namely, once you start bailing, how do you stop? How should a government engineer reforms in its beneficiaries to keep from throwing good money after bad?

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Thatís Alan Greenspanís new part-time job. The task of the newly formed Air Transportation Stabilization Board, headed by the Fed head (or his representative) and rounded out by Treasury Secretary Paul OíNeill, Transportation Secretary Norman Mineta, and U.S. Comptroller General David M. Walker, is to figure out how to disburse those $10 billion in loan guarantees (essentially a government co-sign that allows banks to make bad loans to desperate carriers at reasonable rates). To decide which airlines get how much money at what rates, and what, if anything, they have to do to get it.

They certainly need it

Because make no mistake, the airline industry  saddled with high labor costs, low profit margins, and nose-deep in debt from a continuous price war over routes and market share  was in a tailspin long before the towers fell. Some carriers were already sliding into bankruptcy, and with the rest trying to buy the routes of the ones that were failing, consolidation was already coming as fast as regulators would let it. The post-Sept. 11 edge-of-the-table descent to an 80-percent-tops-capacity industry  one in which costs only fall to 90 percent, thanks to union leverage  tipped a teetering industry over the edge.

So who to save and who to let fail? America West and US Airways, the weakest of the majors, were already headed into the tank pre-attacks  should they get the same loans at the same terms as, say, Delta, which has the best balance sheet of the Big Five? What about Southwest, which has actually been turning a profit for years  should its money go to, say, Continental, which is also profitable but mortally leveraged?

Normally, a Republican White House (and Fed chairman) would never dream of picking winners and losers, never play Big Government in Wall Streetís backyard. But there is the small matter of possibly getting the money back at some point, and the worse off an airline is the more likely it is to merely absorb the funds and continue on the same flight path to insolvency it was on before Sept. 11. And then come back for more money.

Washington can do a lot to see that this bailout goes a long way. It can stipulate that airlines demand pay cuts from their unions and concessions from plane manufacturers, and it can lean on banks to keep the loans flowing. It can also pass legislation sponsored by John McCain that imposes mandatory arbitration of labor disputes, removing the threat of crippling strikes from the unionsí hand and keeping labor costs manageable. It could even get tougher on salaries than the feckless two-years-no-executive-raises condition imposed on the first $5 billion payout. (CEO Stephen Wolf of already-failing US Airways will now have to get by on $11 million a year until 2004.)

But Greenspan hates to tell Congress its job, and early peeks at the ATSBís thinking (courtesy of the WSJ) point to Washington doing a little. Loan the money evenly and to all carriers weak and strong, big and small, with maybe the best terms set aside for the airlines that can put up the most collateral (fair enough)  and be fully prepared to kiss a lot of it goodbye.

The next round

The matter of promoting the industryís long-term health  the tough-love Chrysler bailout worked wonders, the IMFís foreign versions have been less successful  will come back around to Washington soon enough. Most analysts believe the industry is inexorably headed for rampant consolidation and the fare increases that come with it  if Congress wonít force change on the industry, lawmakers may have to call off the trustbusters and let it sort itself out.

Because even if Americans returned to the skies in full force tomorrow, tighter security means fewer daily flights, and fewer daily flights mean less profit from fixed assets like planes, routes and contract employees. The industry not only took an almost unimaginable one-time hit on Sept. 11, it entered an era where the flying business is even less profitable than it was before. Fundamental changes will have to be made, or the bailouts will never end.

Tylenol had a product-safety scare, and the government didnít bail them out. But since Osama bin Laden declared war on our economy, Washington has decided that keeping the wobbly airline industry aloft is a matter of national security. Letting Alan Greenspan decide how to dole out the $10 billion should ensure a thoughtful distribution. But itíll be up to Congress to decide whether they want this bailout to be a one-time rescue  or the beginning of a serious welfare addiction.